Monday, August 30, 2010

Human settlement densities get a lot of attention for two reasons. First, the data are usually easy to get; we know the areas and the populations of many places. Second, we rightly suspect that most people do their best work when they are near (but not too near) others who have worthy ideas and are doing good work.

Trouble is that most of the places for which we have data (countries, states, metro areas, even large cities) are too big. Human settlement densities vary considerably and averages are misleading.

Recently Sandy Ikeda and I considered densities for PUMAs (Public Use Micro-Sample Areas). Their average size is 100,000 and they approximate large neighborhoods.

Here are some of the fun facts:

For 2005 and for the top-25 PUMAs in terms of in-migrants with a Master's degree or higher, we found that these people migrated to parts of Manhattan as well as to areas such as Silicon Valley. These people were attracted to opportunities found in “low density” as well as in “high density” places. Four of these top 25 PUMAs were in Manhattan; four of the top 25 were in Silicon Valley; the other top-25 destinations were in West Los Angeles or suburban Washington DC, suburban Seattle, Austin or San Diego. The densest receiving area (in Manhattan) was thirty-eight times as dense as the most spread out (in Silicon Valley), yet each one succeeded in attracting many highly educated people. The areal sizes varied from below ten square km (Manhattan) to just over 300 square km(Washington DC suburbs) and one just over 250 square km (Silicon Valley).

Saturday, August 28, 2010

Dan Neil writes about the new all-electric Nissan Leaf in today's WSJ and gives it a thumbs-up. He mentions the 100-mile range and "range anxiety", but dismisses that as "neurotic."

Perhaps, but that is no reason to bet that range anxiety will not get in the way of sales. Behavioral economists and Dan Neil and the entire mental health field may shudder at the neuroses of the buying public, but to dismiss them lightly is another matter.

Speaking of looking back on one's forecasts, Megan McArdle has this very nice "I Wuz Wrong" post. In the Internet age, it's best to get out in front and admit to one's forecasting errors before the rest of the world does it for you.

I'll have to give it more than one year, but if I'm still blogging in (say) three years, I will return to the range-anxiety story and fess up to whether "I wuz wrong" or not.

Thursday, August 26, 2010

The Nazi death camps of Europe are, for the most part, preserved and visited. The same cannot be said for the gulag. The Aug. 30 New Yorker includes the haunting "On the prison highway: the gulag's silent remains" by Ian Frazier. It's stunningly eerie because the author had to work hard and hire a guide to discover and stumble over remote and snowed in prisoner-built roads to discover the out-of-the-way remains of just one of the gulag's slave labor camps. One can only wonder, and in no way really fathom, all of the misery undergone in that place -- one of so many that are also lost to obscurity. The piece is actually the conclusion of a series abstracted here.

The author notes, "What struck me and then still strikes me now was the place's overwhelming aura of absence. The deserted prison camp just sat there -- unexcused, untorn-down, unexplained ... The world more or less knows what it thinks of Hitler. Stalin, though, is still beyond us. As time passes, he seems to be sidling into history as one of those old-timey, soft-focus monsters -- like Ivan the Terrible, like Peter the Great ... Hitler killed millions, and we have a rough idea how many, but the millions of victims of Stalin are still difficult to count ..."

There is much more. Buy, find the magazine. Read and share the article.

Tuesday, August 24, 2010

It often takes a policy to fix the consequences of the last policy. In polite company, it's called "the law of unintended consequences". We know that employer-provided health insurance in the U.S. can be traced back to World War II price controls. Employers compete on many margins and controlling any one of them is never the end of the story. The health care cost curve that policy makers are now struggling to "bend" is the legacy.

Likewise with the new rules to police credit card penalty fees. Yesterday's WSJ led with "Credit-Card Rates Climb ... Levels Hit Nine-Year High as New Rules Limiting Penalty Fees Help Fuel Rise." The new rules, of course, are part of the new financial market "reforms" and "consumer protections" that politicians will take credit for through the coming election season.

Freakonomics points us to yet another study that shows how the design of neighborhoods can contribute to weight loss. I am, of course, skeptical. Weight loss, I am told is not so easy.

But lets' accept these results (reported in the American Journal of Preventive Medicine) and ask "at what cost"? The case study involves the Lynx light-rail operating in Charlotte NC. In earlier posts I had written that these systems are likely to be cost-ineffective. The data that Paige Elise Kolesar and I recently assembled show that Lynx runs an annual operating deficit of almost $8 million. Account for capital costs (which transit agencies often ignore) and the annual deficit is almost $46 million. Add non-user benefits (as per Ian Parry and Ken Small's calculations; American Economic Review of June 2009) and the deficit goes down to $45 million per year.

Lynx only attracts about 2.26 million boardings per year. If these are round-trips and users board Lynx 300 times a year, we only have 3,750 weight loss beneficiaries. If society loses $45 million a year even after non-user benefits are taken into account, the estimated weight losses cost us $12,000 per beneficiary per year.

Cynics started doing the math many years ago and found that buying rail transit users a car would be far cheaper. But that would never fly with the smart set. So consider the 2010 update which suggests that buying them a bus pass plus health club membership is the way to go. The various "cash-strapped" governments would save money.

Saturday, August 21, 2010

In a historic reversal, in today's America the rich are thin and the poor are fat. But we now hear that it's not peculiarily American, but just the arc of prosperity; other affluent societies are heading in the same direction. Lionel Tiger in today's WSJ sums it up very aptly and with a dash of fun ("Please Sir, Can I Have a Bit Less?").

And eating habits had to become part of political platforms because everyone else's health is now the source of an externality. Think of it this way: today's LA Times includes "China tries in vain to keep bellies buttoned up ... Beijing has been on a manners kick for the last few years, but on the hottest summer days, there is no stopping men of all ages and shapes from rolling up their shirts and exposing their tummies."

Wednesday, August 18, 2010

Should economists and policy makers have identified the housing market bubble before it burst? The answer is most likely no, says the Federal Reserve Bank of Boston, because economic theory was not up to the challenge.

“Economic theory provides little guidance as to what should be the ‘correct’ level of asset prices — including housing prices,” the new paper published by the bank says. It was written by economists Kristopher Gerardi, Christopher Foote and Paul Willen.

I have not yet read the original paper, but have been dumbfounded by all the learned finger-wagging about something that (i) we can best define in hindsight; and (ii) we can bet on/bet against if we think we "know something".

In this morning's WSJ, Jeremy Siegel and Jeremy Schwartz argue that we are now in a bond bubble. The arguments and the data are laid out and we can make whatever bets we like. Some of us will be right and some will be wrong.

In recent house-price bubble history, a confluence of events worked in concert to push up house prices; we want policy makers to do less to contribute to such episodes. Perhaps stick with a Taylor Rule. But that's not the same as asking them to do more and deflate bubbles when they think they see them.

Monday, August 16, 2010

Using geographic boundaries to aggregate information has always been caused problems. Economists have long noted that place-prosperity is a poor indicator of people-prosperity. Anti-poverty policies often target poor neighborhoods, but all neighborhoods are somewhat diverse and if and when a program actually elevates someone out of poverty, he or she is likely to leave the area. Geographic indicators will miss that success.

Insurance companies and banks usually get in trouble when they use "redlining" as a shortcut for identifying more vs less worthy applicants.

Today's LA Times includes this which illustrates the problem in another light. Here is the punch-line.

Some affluent areas qualify for tax breaks intended to benefit the poor ...
Businesses can save up to $37,400 for hiring in an economically disadvantaged area. But those areas are designated based on large census tracts that don't always reflect the intended demographic.

Among the advantages for those who live in multimillion dollar houses on the hillside in Los Feliz are celebrity neighbors, sweeping views of the downtown skyline, the Griffith Observatory in their backyard and designation by state tax authorities that they are economically disadvantaged.

That means tens of thousands of California businesses can claim tax breaks worth up to $37,400 each for hiring some of Los Feliz's rich residents, through a program that provides benefits to companies for hiring welfare recipients, ex-convicts, military veterans and the chronically unemployed.

This one makes the front pages because it is so bizarre. Who was it that said that missing and detailed local knowledge stymies even well-meaning political programs?

Sunday, August 15, 2010

Most urban planning faculties include one or more economists, as they should. It is even better when one of these professors applies one of the core ideas of economics (that getting the prices wrong can be catastrophic) to one of the core problems of cities (managing the auto-highway system). UCLA's planning faculty has had the good sense to hire Don Shoup and Shoup has had the good sense to realize that how we manage parking has been terribly wrong. The prices are all wrong and the regulations are all wrong. Among Don's many writings, his The High Cost of Free Parking is the classic summary of his insight.

The bad news is that the same newspaper includes back-to-reality coverage re traffic and how real world planners and politicians get it all wrong. "New Stress Added to the Heart of LA Gridlock" describes a $1.3 billion project to add another car-pool lane. The story mentions all of the extra delay that the construction project causes. No mention is made of the fact that projects like this do nothing to convert people to carpooling. No mention of the fact that building something expensive is much preferred to pricing something and in any dollar-for-dollar comparison of the costs and the benefits, the two approaches are not even close.

People like Don Shoup and Tyler Cowen just have to start working harder.

Friday, August 13, 2010

This morning's LA Times includes "Wilshire Grand developer seeks public assistance on $1-billion project ... The LA City Council's Housing Community and Economic Development Committee has authorized a study to be conducted to evaluate the type of assistance the developer might get ... The study would be carried out by independent consultants hired by the City, and funded from $250,000 that the developers have agreed to pay ..."

I know, stuff like this happens every day. It would be nice if there were a betting opportunity on what the study finally recommends. But studies like this are part of a cottage industry and they are usually a bunch of dressed up assertions.

But why not include double-entry bookkeeping in the study? There will surely be employment multipliers as part of the magic, but what about the multiplicand? Every dollar that presumably turns over when the City forks over the $1 billion comes from somewhere. Every additional dollar that the multiplier conjures comes from somewhere. Studies that add up all the plusses are standard. But most of these have offsetting minuses somewhere else. If $250,000 will be spent on the study, then why not show the offsets too? I think I know the answer.

Wednesday, August 11, 2010

The political allure of industrial policy is clear. Picking "winners" can easily be confused with picking voters.

All this has been fused to the "need" for ever more deficit spending. And Federal Reserve printing presses have been joined to state and local government "needs".

The critics pin President Obama's falling approval numbers on "not focusing enough" on the economy, but what can they possibly mean? The Administration's playbook is pretty clear. The critics say he should do even more in the way of deficit spending -- picking ever more "winners". Thomas Sowell has aptly summed up the thinking of Obama's critics on the left: "Heads-I-win-tails-you-lose." The poor showing for all the spending is not that it's bad policy, but there has just not been enough of it.

The beauty of it is that you can apply this model to anything that has not worked out so well. Spanking the incorrigible kid not working? You did not spank enough! War on Drugs not working out so well? Ramp it up.

Monday, August 09, 2010

Today's WSJ includes "Why I'm Not Hiring ... When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and give her $12,000 in benefits." This is by an employer and "Sally" is an alias for one of his employees.

The "wedge" is 25%. In a better world, I get a dollar for every learned discussion of why unemployment remains stubbornly high.

While I am greedy, I may as well claim another dollar for every complaint about increasing inequity when unabashed progressive redistribution has been federal policy ever since the New Deal. And how about another dollar for every complaint about deteriorating infrastructure when state and local government spending is bigger than ever?

Sunday, August 08, 2010

Every Econ 101 course includes discussions of rationing via price vs. the alternatives. But prices ration on the demand side while also sending valuable signals to the supply side. Take away prices and you lose both, and that's what made Soviet lines so awful.

A very nice background discussion of queuing appears in today's NY Times, "Getting in (and Out) of Line". The author alludes to all three options: prices, orderly lines or messy scrums (misunderstandings, conflicts and more than occasional ugliness). But he manages to avoid the fact that the best is the enemy of the good and ends this way:

In a way, the market’s spread is a return to another kind of scrum, one in which financial, and not physical, might means right. Perhaps one day lines will be remembered as antique, a quaint system in which things were granted simply for having shown up early, an interlude of relative equality between the scrums that reigned before and after.

Friday, August 06, 2010

Greg Mankiw comments on Christina Romer's resignation from her post as Chair of the Council of Economics Advisors. Having been in her position, he speculates on what is going through her head as she transitions back to her faculty position. All of this reminds me of one of my favorite passages from Paul Seabright's Company of Strangers. The author refers to "politicians", but the discussion may as well refer to any member of the crew. It goes like this:

Politicians are in charge of the modern economy in much the same way as a sailor is in charge of a small boat in a storm. The consequences of their losing control completely may be catastrophic (as civil war and hyperinflation in parts of the former Soviet empire have recently reminded us), but even while they keep afloat, their influence over the course of events is tiny in comparison with that of the storm around them. We who are their passengers may focus our hopes and fears upon them, and express profound gratitude toward them if we reach harbor safely, but that is chiefly because it seems pointless to thank the storm. (p. 25)

Tuesday, August 03, 2010

Here is how our leaders think about cities (and themselves). From an email blast that just arrived:

WASHINGTON Today, the Senate Banking Committee voted to approve the Livable Communities Act, a proposal to create the next generation of smarter, sustainable and energy-efficient communities. Sponsored by Chairman Christopher Dodd, this bill would authorize HUD's new Office of Sustainable Housing and Communities and create an interagency working group within the federal government to align the community planning and development functions of HUD, the U.S. Department of Transportation and other agencies to allow for a more coordinated and comprehensive approach to building better communities.

The following is a statement by HUD Secretary Shaun Donovan:

Today, the Senate Banking Committee took a bold and forward-thinking step toward creating the next generation of livable and sustainable communities. In particular, Chairman Dodd understands that if we're going to encourage the development of smarter, more energy-efficient communities, we have to break down the policy silos that keep many parts of our government from talking to each another. Not only does this measure align the collective energies of the federal government toward this task, but it will help generate jobs, encourage a new way of thinking about land use, reduce congestion, and generally make our neighborhoods better places to live.

But what what if cities are more like spontaneous orders than complex playthings amenable to politics? What if: (1) people will “truck, barter and exchange” (A. Smith) no matter what their leaders come up with? and what if (2) Prisoners Dilemma situations illustrate the limits of trade (insecure property rights, high transactions costs, low levels of trust), but one man’s problem is another man’s opportunity and entrepreneurs act to remedy prisoners dilemma situations when they can (E. Ostrom); and if (3) the rules of the game have many sources beyond our leaders, including bottom-up common law and many “unwritten rules” that Ostrom and others illustrate; and what if (4) public choice economics highlights the actions that are incited by any set of rules, including many “unintended consequences”; politicization is inevitable; and if (5) top-down planning is impossible; planners lack local knowledge and local knowledge is too complex to be fathomed by individuals or committees (Mises, Hayek); and if (6) planning is universal, but markets reconcile competing plans, and this also challenges the idea of top-down planning; and if (7) the most ambitious top-down planning (the Marxist legacy) has failed repeatedly, bringing on misery and starvation -- and state terror to manage starving populations (North Korea); and what if (8) large bunches of redistributionist policies are enacted with presumably progressive intent, but often end up being regressive; they have been a staple of U.S. politics since at least the New Deal, but complaints about increasing inequality are greater than ever; and if (9) land use controls in America help to explain housing affordability problems; and if (10) the world has been urbanizing for many years because cities are the “engines of growth”; cities encourage entrepreneurial success as long as they foster spatial arrangements that are congenial to entrepreneurial discovery; this includes spatial arrangements that internalize many positive externalities and minimize the possibility of many negative externalities; and if (11) such spatial arrangements are too complex for top-down planning (Jacobs, Mises, Hayek); and if (12) public goods market failures are minimized via Tiebout competition; and this includes private land use planning (in malls, industrial parks, private communities); and (13) designers do essential work; we willingly board airplanes, trusting the engineers who designed them.

And what if, in light of all this, we think very hard about what role is there for planners and designers when it comes to modern cities and decide that the presumption ought to be towards the lightest possible touch? Naw.

Monday, August 02, 2010

The U.S. War on Drugs is nuts. That's by now an old and ever more widely shared sentiment. But how can policy makers get out from under the mess? Is there a winning political coalition in sight? This morning's LA Times includes this story about Oakland, which may show the way.

Jeff Wilcox lopes across the nearly empty parking lot, aiming for a large brick building. Inside, he excitedly shows off the cavernous space, once used to make wire, vacant now for a decade. He imagines it running 24/7, filled with glowing lights, gurgling irrigation systems, whirling ventilators and workers coaxing thousands of pungent marijuana plants to bud.

And that's just one part of his proposal. Wilcox, a retired builder, owns a campus of aging, idled industrial plants. On a wall in an unused conference room, a sketch of the property shows how he could fill most of the 172,000 square feet with growers raising high-end pot and entrepreneurs turning out brownies, drinks, tinctures and other products.

"My idea was a business park of cannabis," he said.

The story mentions support from Oakland City officials. Just marry industrial policy to local government budget shortfalls to pot policy reform.